This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the bottom of any article.

January 29, 2014

Gen X, Y Hungry for Advice, but Advisors Don’t Satisfy

Young investors less likely to give referrals, large share of assets to primary advisors, study finds

Younger investors are more likely to feel their advisor isn’t really working for them, less likely to recommend their advisor to someone and more likely to spread their assets among multiple advisors, according to a report from Market Strategies International, a global market research firm.

The firm conducted an online survey of more than 4,000 affluent investors with at least $100,000 in investable assets, including retirement accounts, but not real estate. Respondent were asked to rate on a scale of one to five how strongly they agreed with a series of statements, with a higher score indicating greater agreement.

When asked to rate their agreement with the statement, “I trust my financial advisor is working in my best interest,” most responses were positive.

“About two-thirds agreed overall; 68% either gave a four or five,” Meredith Rice, a senior director at Market Strategies International, told ThinkAdvisor on Tuesday. “They’re very likely to agree, but among Gen Y and Gen X, it was actually less than six in 10. Gen Y was 59%, Gen X was 57%, whereas we see the level of agreement going up among the boomer and the silent generations. Among the first-wave boomers, over three in four, 76%, agreed and of the silent generation nearly eight in 10, 78%, agreed. There were very different feelings in terms of trusting their advisors, feeling their advisor was working in their best interest, when you looked at it by generation.”

Younger investors were also giving a smaller share of their assets to their primary advisor, the survey found.

“Among Gen Y, they’re giving about 35%, Gen X about 46% and it keeps going up to the silent generation having their primary advisor manage nearly 70% of their assets," Rice said. "We also found that the younger Gen Y investors are more likely to be working with multiple advisors compared to some of the older generations.”

The survey found younger investors were less likely than boomers to offer a referral, too. Rice suggested that’s because the industry is still catching up to the needs of these young investors. “The industry has been so focused on the boomers that some of these younger investors just haven’t been getting as much attention. Something else we saw with Gen Y is they’re really hungry for information. They’re using all sorts of different tools to get that information and are more reliant on online tools.”

Young investors might have more complex needs than advisors realize, too, Rice said. Over a quarter of Gen Y respondents said at least part of their assets are from an inheritance, compared with 17% of respondents overall.

It can’t be ignored that advisors with a long history and a good relationship with certain clients will naturally give them more attention, even if unintentionally.

“The older customers, they have many years history of working with that advisor through thick and thin, through all different kinds of environments, whereas the younger investors don’t have as long of a history [with their advisor], “Rice said. “The advisors, most of their time has been taken up by the boomers and the silent generation, particularly the boomers transitioning into retirement.”

She stressed, though, that even though younger investors have a long time until retirement, it “doesn’t mean they aren’t hungry for advice or information. They’re trying to have more of a concrete plan of how to reach their short-, mid- and long-term goals.”

Although young investors differ from boomers in several ways, they are similar in one important way, the survey found: risk tolerance.

“They have very low risk tolerance,” Rice said. “For instance, Gen Y has 25% of their assets in low-risk investments, which is about the same risk profile as a 50-year-old. They’ve had more limited investing experience, and a lot of it has been post the 2008 market meltdown. We asked some other attitudinal questions and found that they are definitely worried about what the effect on their savings could be if there was another market meltdown.

"This generation is a little different from older generations where there was more of a three-legged stool. They could rely on the government, Social Security, they could rely on pensions. I think this generation’s very cognizant that they have more personal responsibility for their savings, and they’re very focused on it.”

A recent report from UBS came to a similar conclusion. Millennials aren’t just conservative or somewhat conservative, they’re “extremely conservative,” with the average portfolio holding 52% of assets in cash, compared with 23% for other investors.

Rice suggested that to reach out to younger investors, advisors change the way they engage with them to meet young clients’ expectations. “We do see that online tools are increasingly important to them, using social media and other ways to engage,” she said of the survey results. “It’s a little bit of a different relationship compared with the older investors who might be reliant on print mail or in-person visits or phone calls. Part of it is communicating with them in a way that works for them. Just letting them know that the firm is there to meet their needs and is focused on them, even just making them feel important.”